Lately we are seeing a lot of different voices speaking up to suggest the the current US dollar based monetary system may be on the verge of a "paradigm shift" or "reset" or whatever term you prefer to suggest things may be starting to change. Now JP Morgan is out with a new article adding their voice to the growing chorus.
Since this blog watches for any indications of reset of the present monetary system, seeing JP Morgan talk about things we have talked about here for years gets our attention. Below are some excerpts from the article titled - "Is the Dollar's Exorbitant Priviledge Coming to and End?" After that are a few added comments.
--------------------------------------------------------------------------------------------------------------------------Is the Dollar's Exorbitant Priviledge Coming to an End?
"The U.S. dollar (USD) has been the world’s dominant reserve currency for almost a century. As such, many investors today, even outside the United States, have built and become comfortable with sizable USD overweights in their portfolios. However, we believe the dollar could lose its status as the world’s dominant currency (which could see it depreciate over the medium term) due to structural reasons as well as cyclical impediments.
As such, diversifying dollar exposure by placing a higher weighting on other currencies in developed markets and in Asia, as well as precious metals makes sense today. . . . ."
. . . .
"In other words, in the coming decades we think the world economy will transition from U.S. and USD dominance toward a system where Asia wields greater power. In currency space, this means the USD will likely lose value compared to a basket of other currencies, including precious commodities like gold.
Recent data on currency reserve holdings among global central banks suggests this shift may already be under way. As a share of overall central bank reserves, the USD’s role has been declining ever since the Great Recession . The most recent central bank reserve flow data also suggests that for the first time since the euro’s introduction in 1999, central banks simultaneously sold dollars and bought euros.
Central banks across the globe are also adding to gold reserves at their strongest pace on record. 2018 saw the strongest demand for gold from central banks since 1971 and a rolling four-quarter sum of gold purchases is the strongest on record. To us, this makes sense: gold is a stable source of value with thousands of years of trust among humans supporting it."
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My added comments: This article from JP Morgan basically says what we have been saying here for a long time. I suspect that many of the experts we have covered here that are predicting an end to present monetary system based on the US dollar will find it interesting to see JP Morgan now talking about that very thing. Also, it seems that suddenly gold is not a useless relic of the past in the eyes of JP Morgan since they directly recommend their clients add gold to their investment portfolio in this article (they appear to suggest a 10% allocation to gold related investments):
"Given the persistent—and rising—deficits in the United States (in both fiscal and trade), we believe the U.S. dollar could become vulnerable to a loss of value relative to a more diversified basket of currencies, including gold. As we scan client portfolios, we see that many of them have far more U.S. dollar exposure than we feel is prudent. At this stage of the economic cycle, we believe this exposure should be more diversified. In many cases, our recommendation would likely be to place a higher weighting on other G10 currencies, currencies in Asia and gold (see chart). Talk to your J.P. Morgan Advisor to review your portfolio, and for more information on how to diversify."
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Added note for a related article: The South China Morning Post runs an article titled ----China has 'price to pay' for Cutting US Dollar share of reserves . . . .
Quotes from the article:
“There is no alternative market that can offer China the ease and safety in trading that is as deep and broad as the US dollar market,” Ding said.
. . . .
Safe, an arm of the central bank that reports directly to China’s top leadership, highlighted in its annual report two main strategies used to manage the country’s reserves.
One is “diversification” of assets into multiple currencies, resulting in the sharp decline reliance on US dollar-denominated assets. . . ."
Added note for a related article: The South China Morning Post runs an article titled ----China has 'price to pay' for Cutting US Dollar share of reserves . . . .
Quotes from the article:
“There is no alternative market that can offer China the ease and safety in trading that is as deep and broad as the US dollar market,” Ding said.
. . . .
Safe, an arm of the central bank that reports directly to China’s top leadership, highlighted in its annual report two main strategies used to manage the country’s reserves.
One is “diversification” of assets into multiple currencies, resulting in the sharp decline reliance on US dollar-denominated assets. . . ."
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